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With one magnificent gift, Leonard Lauder has vaulted New York’s Metropolitan Museum from modern art weakling to global champ. Until recently, the world’s finest artistic institution remained tentative about the 20th century (and utterly perplexed by the 21st). Now, as the new Cubism show decisively proves, Lauder’s $1bn trove of paintings by Picasso, Braque, Gris and Léger has given the Met a whole new area to dominate.

At the very least, it has just challenged the ever-expanding Museum of Modern Art on its own turf. The game is one-upmanship, the chips are modern masterworks, and the two major players are Lauder, long a major benefactor of the Whitney Museum, and his kid brother Ronald, who founded the Neue Galerie and is a MoMA trustee. Let’s hear it for plutocrats’ sibling rivalry, which benefits art lovers worldwide.

A museum that accepts a private collection must often fill its vaults with dross for the sake of a few precious pictures. Lauder’s gift, on the other hand, may require a whole new wing. These paintings were acquired patiently, over decades, with discrimination and relentless focus. He waited for what he wanted, then pounced. The result is a sublimely partial view of a movement that’s easy to misunderstand. Staying away from mud-coloured cityscapes or dour analytical greys, this show catches a period of exhilarating optimism and cerebral joy that flamed out at the start of the first world war.

Beautifully installed by Rebecca Rabinow and Emily Braun, Cubism might have been called Cubists at Play. Of all the modern “isms”, this can be one of the thorniest. Often hermetic and deliberately unintelligible, cubism banished many of painting’s natural delights, including colour and the sensual texture of brushstrokes. But the Met show brings out the movement’s puckish whimsy. Rabinow and Braun remind us that Picasso and Braque engaged in an elevated kind of painterly banter, peppering serious investigations into the nature of reality with visual puns and crude double-entendres. They even found humour in iconography and composition. It’s no coincidence that the fragment “jou”, which was clipped from the word “journal” but is also the root of the verb jouer (“to play”), punctuates their work so consistently. That syllable sums up an affable rivalry and the intellectual thrill of solving each puzzle of a painting.

Picasso and Braque had fun messing around with the gears of perception. Picasso’s 1912 collage, “Composition with Violin”, represents a fiddle seen from different angles simultaneously, its structure separated from its sensuous outlines. A page of newspaper, with each end cut into a pair of buttock-like curves, intersects with a line drawing of a box. The instrument’s elements are all accounted for – bridge, strings, neck and F-holes – but they’re placed asymmetrically and slightly askew, as if a violinmaker were having a very bad day. But wait! Stare long enough, and the violin morphs into a face; the bridge is a blocky trapezoidal nose, the F-holes a sumptuous set of mustachios, the black tailpiece a Mephistophelian goatee.

Faces and body parts pop up all over, disguised in dense geometric still lives. In Picasso’s 1911 “Pedestal Table, Glasses, Cups, Mandolin”, we recognise the artist’s studio from a photograph taken that same year, so we can see exactly how he deconstructs the scene. He stipples faceted planes and fragmentary surfaces to signify light shifting over time. Near the centre of this grid of cups and vases, a dark cavity opens up, representing the sound hole of a mandolin. A longer look reveals the hole to be a solid whole, a black fist that punches right through the surface of the painting. That weird, paw-like form reappears in a series of drawings Picasso made a few years later, as he struggled to move cubism forward. Now definitely a stumpy hand, with fingers that merge into knuckles, it still manages to shape-shift into a wine glass, an elephant’s hoof, an upside-down tassel. In Picasso’s dazzling prestidigitations, nothing is ever just one thing.

Even at their most opaque, the cubists were never seduced by abstraction. Rather, they were realists of a rarefied order, painters who insisted on rendering the world not by flattening it into a series of conventional illusions, but in three dimensions. We study a face by watching it tilt in the changing light; we know an object by turning it in our hands. The cubists returned to the impressionists’ concerns: the accoutrements of modern life, the promise of ever-greater speed, and the secrets yielded by ruthless observation. Picasso and Braque both idolised Cézanne, but it was Monet who taught them to scrutinise the way time and light altered the very essence of the material world.

Picasso and Braque dubbed themselves Wilbur and Orville – the Wright brothers and heroic inventors of modern life. Their Paris was a machine-age city, where billboards, cranes and advertising posters clashed in vibrant dissonance. The poet Apollinaire captured the glorious urban cacophony that invigorated his painter friends:

You read handbills, catalogues, posters that shout out loud:
Here’s this morning’s poetry, and for prose you’ve got the newspapers,
Sixpenny detective novels full of cop stories,
Biographies of big shots, a thousand different titles,
Lettering on billboards and walls,
Doorplates and posters squawk like parrots.

No cubist savoured the classless chaos of the metropolis more than Juan Gris, whose paintings and collages are the Lauder collection’s most concentrated source of splendour. The pulp-fiction master criminal Fantômas lurks in plain sight, giving a ghoulish, gothic mood to riotous arrangements of pears, fabric, patterns, and wood grain. Every masterpiece is a mystery; Gris turns viewers into detectives, inviting them to spot the dagger, the shadow, or the wide-brimmed hat.

The Met show culminates with his 1915 “Still Life with Checked Tablecloth”, a coyly dry title for an explosive oil, in which the appurtenances of a kitchen – newspaper, grapes, a bottle of ale, another of wine – are threatened by the hidden outline of a charging bull. That image summarises the Met’s sudden windfall, a group of works that embraces both savagery and merriment, violence and mind games in one spectacular splurge of complexity.

‘Cubism’, Metropolitan Museum, New York, to February 16 2015, metmuseum.org

Photograph: 2014 Estate of Pablo Picasso / Artists Rights Society (ARS), New York

Slideshow photographs: The Metropolitan Museum of Art; 2014 Estate of Pablo Picasso / Artists Rights Society (ARS), New York; 2014 Artists Rights Society (ARS), New York

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